Modern macroeconomics is increasingly concerned with the determinants of the level of economic activity in an open-economy framework. The growth of trade and capital flows has created a degree of economic interdependence such that national economies can no longer be treated as isolated entities, if they ever could be. Macroeconomic policy has, simultaneously, to address issues of internal and external balance and policy choice, and effectiveness is constrained by external dependency. Furthermore, because of the externalities that macroeconomic policy gives rise to in an open-economy framework, policy co-ordination by policy-makers in different countries becomes an imperative. This extends beyond problems of macroeconomic stabilisation to microeconomic issues, such as tax policy and labour-market regulation.
This reader edited by Mehmet Ugur of the University of Greenwich brings together a selection of old and new readings, which are concerned primarily with the problems of determining and implementing macroeconomic policy in an open-economy setting. The book begins with two seminal articles by Robert Mundell and Marcus Fleming written in the 1960s, which describe the now-famous Mundell-Fleming model for choosing the appropriate set of macroeconomic policies in an open-economy setting. This is followed by two readings discussing the problem of external balance and a further four readings on the problems of simultaneity. The latter includes the seminal 1962 paper by Mundell on this subject, which proposed the assignment of different policy instruments to different policy targets.
The next section moves on to the problem of international policy coordination with readings by Koichi Hamada and by Peter Mooslechner and Martin Schuerz. Then comes a selection of readings on monetary union. These include Mundell's 1961 paper in the American Economic Review and Roland McKinnon's 1963 paper in the same journal, presenting the theory of optimum currency areas in its original form. Further readings by Paul de Grauwe and Barry Eichengreen discuss the relevance of the theory for Europe. Finally, the last two sections contain readings on the implications of growing economic interdependence for taxation policy in open economies and for labour-market regulation. An article by Peter Sorensen examines the case for international tax coordination, a hotly debated subject in both the Organisation for Economic Cooperation and Development and the European Union, while two further articles debate labour-market deregulation in the context of increased economic interdependence.
Each of the nine sections is preceded by a brief summary of the articles included in the section and the reason for the choice. Each finishes with a set of questions for further discussion plus some suggestions for additional reading.
Students taking macroeconomics at an intermediate or advanced level will find this an extremely useful text covering most of the subject matter. One of its advantages is that it enables them to read for themselves the original articles and papers that set out the theories and models referred to in modern textbooks, rather than discover them second hand. The policy focus will also interest students who are interested in macroeconomic theory mainly because of how it informs policy choice and decision-making. Students of European integration will find the readings on monetary union of particular value. The fact that the readings contain only a limited amount of mathematics will be a relief for those who find the need to grapple with the technical nature of modern macroeconomic theory an unwelcome distraction.
One surprise omission is exchange-rate policy coordination, other than within the context of a monetary union. Given the policy focus, I did wonder whether a section on alternative exchange-rate regimes might have been useful, especially in the light of the recent Argentinian experience and the debate about currency boards. It would also have been useful to point to the works of John Williamson and Roland McKinnon on exchange-rate target zones in the same volume.
However, none of this detracts from the value of Ugur's reader for students wanting to seek out and read the original contributions of pioneers in this area. My suspicion is that those teaching this subject will wish to stick with one of the more conventional texts on open-economy macroeconomics as the core reading for students taking courses in this field. This book would, however, make useful supplementary reading. Little that a student of intermediate macroeconomics needs to know is missing from these pages.
Nigel Grimwade is head of economics and finance, South Bank University Business School.
An Open Economy Macroeconomics Reader
Editor - Mehmet Ugur
ISBN - 0 415 25331 4 and 25332 2
Publisher - Routledge
Price - £85,00 and £25.99
Pages - 545